Global Courant 2023-05-17 10:51:25
Finance Minister Enoch Godgonwana says South Africa will have to make a number of trade-offs to meet mounting fiscal challenges and ensure public finances are restored.
One of the most notable challenges is the decision on the wage bill in the public sector, as one third of the national budget is spent on the salaries and benefits of civil servants and political office holders.
During a budget debate on Wednesday (May 16), the minister said that some of the downside risks outlined in his earlier national budget speech have unfortunately materialized for the budget.
Godongwana said the most important of these is the outcome of the public sector wage negotiations, which the budget did not anticipate.
“The result is that the macrofiscal position presented in the budget has changed unfavorably and significantly. The risks for the future remain high,” he said.
On March 31, the government and unions in the Public Coordinating Bargaining Council (PSCBC) agreed on a two-year wage deal following public protests.
The agreement means that in 2023 there will be a 7.5% increase for public sector workers and that in 2024 growth will be determined based on the National Treasury’s consumer price index (CPI) forecast.
Godongwana said that in 2025/26 the wage bill in the public sector will rise to more than R760 billion; however, the recent wage agreement is putting upward pressure on the wage bill, according to the minister.
“This means the National Treasury needs to identify more than R37.4 billion in savings in the current fiscal year to cushion the blow to the fiscal framework,” Godongwana said.
To achieve this, the minister said it would involve making “difficult compromises” and possibly rationalizing staffing and deploying workforce management strategies to curb wage costs.
“Simply put, and as I indicated in the Budget speech, a higher-than-budgeted wage agreement means less scope for recruiting staff,” said the Minister of Finance.
During his speech, the minister also gave a gloomy update on the current and future economic situation in South Africa.
Godongwana said that, according to the International Monetary Fund (IMF), the world is entering a “dangerous place” in which economic growth remains low by historical standards and financial risks have increased as the world waits for inflation to reverse.
However, he said the country’s continued and severe tax cuts have added to these pressures as it constitutes a binding constraint on output, investment and employment.
“As such, real GDP growth in the last quarter of 2022 was worse than expected, contracting by 1.3 percent. As a result, GDP growth in 2022 was 2% weaker than expected,” said Godognwana.
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